In this article, we have come out with a detailed start-up policy announced by the government of India on 1st April 2016. Learn  how to register your Start-up under Start-up India Policy through this post.

 

What is Start-up India?

Start-up India is a flagship initiative of the Government of India, intended to build a strong eco-system for nurturing innovation and Start-ups in the country that will drive sustainable economic growth and generate large scale employment opportunities. The Government through this initiative aims to empower Start-ups to grow through innovation and design.

 

In order to meet the objectives of the initiative, Government of India is announcing this Action Plan that addresses all aspects of the Start-up ecosystem. With this Action Plan the Government hopes to accelerate spreading of the Start-up movement:

 

• From digital/ technology sector to a wide array of sectors including agriculture, manufacturing, social sector, healthcare, education, etc.; and
• From existing tier 1 cities to tier 2 and tier 3 cities including semi-urban and rural areas.

 

The Action Plan is divided across the following areas:

• Simplification and Handholding
• Funding Support and Incentives
• Industry-Academia Partnership and Incubation

 

Inception of Start-up India:

The Start-up India action plan that was announced by the Government of India on 16^th January, 2016 has been put up for action on 1^st April, 2016 when the Government of India launched the official website for recognizing such start-ups and to cater the needs of the start-ups.

 

To understand what a Start-up in India is, we have to understand the complete policy of Start-up India. A brief summary of the policies and its implications have been described in this article for understanding of the potential entrepreneurs and other stakeholders.

 

The first thing to understand in Start-up policy is to understand who is a Start-up. The things discussed here in this article speak about who is a Start-up, how to register a Start-up, what are the benefits available to a Start-up, and when an entity ceases to be a Start-up.

 

Who is a Start-up?

As per the notification dated 17^th February, 2016, Ministry of Commerce and Industry defined Start-up as follows to bring uniformity in the identified enterprises:

                An entity shall be considered as a ‘Start-up’ –

a) Up to five years from the date of its incorporation / registration,

b) If its turnover for any of the financial years has not exceeded Rupees 25 crore,

                                and

c) It is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property;

 

Provided that any such entity formed by splitting up or reconstruction of a business already in existence shall not be considered a ‘Start-up’;

 

Further the notification also provided following explanation:

 

a) An entity shall cease to be a start-up on completion of five years from the date of its incorporation / registration or if its turnover for any previous year exceeds Rupees 25 crore.

 

b) Entity means a private limited company (as defined in the Companies Act, 2013), or a registered partnership firm (registered under section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2002).

 

c) Turnover is as defined under the Companies Act, 2013.

 

d) An entity is considered to be working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property if it aims to develop and commercialize:

 

i) A new product or service or process, or

ii) A significantly improved existing product or service or process that will create or add value for customers or workflow.

 

Provided further that mere act of developing:

a) products or services or processes which do not have potential for commercialization, or

b) undifferentiated products or services or processes, or

c) products or services or processes with no or limited incremental value for customers or workflow

would not be covered under the definition of Start-up.

 

Note: An existing entity shall also be eligible to get itself recognized as a Start-up if it meets the above mentioned criteria.

 

Learn how to register your Start-up under Start-up India Policy

 

How to register?

An individual who wishes to register a Start-up one has to follow the following steps:

                1) Visit http://startupindia.gov.in/registration.php

                2) Fill in the details in the webpage

 

On successful registration, you would be able to download a system generated verifiable certificate of recognition.

 

How will a Start-up be recognized?

The process of recognizing a ‘Start-up’ shall be through mobile app / portal of the Department of Industrial Policy and Promotion. Start-ups will be required to submit a simple application with any of following documents:

a) a recommendation (with regard to innovative nature of business), in a format specified by Department of Industrial Policy and Promotion, from any Incubator established in a postgraduate college in India; or (For format Click Here)

 

b) a letter of support by any incubator which is funded (in relation to the project) from Government of India or any State Government as part of any specified scheme to promote innovation; or (For format Click Here)

 

c) a recommendation (with regard to innovative nature of business), in a format specified by Department of Industrial Policy and Promotion, from any Incubator recognized by Government of India; or (For format Click Here)

 

d) a letter of funding of not less than 20 per cent in equity by any Incubation Fund/Angel Fund/Private Equity Fund/Accelerator/Angel Network duly registered with Securities and Exchange Board of India that endorses innovative nature of the business. Department of Industrial Policy and Promotion may include any such fund in a negative list for such reasons as it may deem fit; or (For format Click Here)

 

e) a letter of funding by Government of India or any State Government as part of any specified scheme to promote innovation; or

 

f) a patent filed and published in the Journal by the Indian Patent Office in areas affiliated with the nature of business being promoted.

 

The list of incubators recognized for the purpose of (a), (b) and (c) are published on the Start-up India portal for reference. (Click Here for list)

The list SEBI registered funds for the purpose of (d) is also available on the Start-up India portal. (Click Here for list)

 

How to validate that a Start-up has been recognized?

One has to visit http://startupindia.gov.in/search.php to validate if a Start-up has been recognized.

 

When Would An Entity Cease To Be A Start-Up?

An entity would cease to be a start-up upon expiry of:

a) 5 years from the date of its incorporation / registration OR,

b) If its turnover for any of the financial years has exceeded INR 25 crore;

 

On ceasing to be a start-up, Start-ups would be required to intimate DIPP (Department of Industrial Policy & Promotion), Ministry of Commerce and Industry about the same within a period of 21 days.

 

Benefits for A Start-Up

Tax benefits for a Start-up:

In order to obtain tax benefits a Start-up so identified under the above definition shall be required to obtain a certificate of an eligible business from the Inter-Ministerial Board of Certification consisting of:

a) Joint Secretary, Department of Industrial Policy and Promotion,

b) Representative of Department of Science and Technology, and

c) Representative of Department of Biotechnology.

Note: The tax benefits will be available from 1^st April, 2016.

 

What are the Tax Benefits?

 

Identified Start-ups who obtains a certificate of an eligible business from the Inter-Ministerial Board mentioned above shall be given 100% tax exemption on profits made in any three out of their first five years. However, it is to be noted that Minimum Alternate Tax (MAT) will apply in such cases.

 

Benefits on IPR to Start-ups:

In order to allow start-ups to realise the value of their IPRs at the earliest possible, patent applications of the start-ups shall be fast tracked for examination and disposal. Panel of facilitators shall provide assistance for start-ups in filing and disposal of patent applications related to patents, trademarks and design under relevant Acts. Government shall bear the entire fees of the facilitators for any number of patents, trademarks or designs that a start-up may file. Start-ups shall be provided an 80% rebate in filing patents vis-a-vis other companies.

 

Frequently Asked Questions on Start-Up Policy

 

a) If an incubator rejects an application, can the entity apply again to the same incubator or would it be required to apply at a different incubator?

Yes. In such cases, an entity can apply again to the same incubator that rejected the application, as well as any other incubator.

b) If during the Registration process, an applicant marks the response to “Do you want to avail Tax and IPR benefits” as “No”, would I be allowed to change the response to “Yes” later?

Yes. In such cases, option to opt for such benefits may be indicated at a later stage as well. Once a user opts for availing the benefits, his/ her application would be evaluated by the Inter-Ministerial Board. Once certified by the Board, the benefits may be availed.

c) If an entity does not have a PAN. Would I be allowed to register my entity as a “Start-up”?

Yes. An entity without a PAN can be registered as a Start-up. However, it is advised that a valid PAN of the entity is provided at the time of registration, as each entity is separately taxable person.

d) Can I provide two mobile numbers in the registration form?

It is advised that only one mobile number of the authorized representative of the entity is provided at the time of registration. The portal and the mobile app would be sending an OTP on the mobile number provided for the user to complete authentication and registration process.

e) Is there any specified format for obtaining a recommendation letter?

Yes. The prescribed formats for recommendation/ support/ endorsement letters are published on Start-up India portal.

f) If an entity has filed for a patent that has been published. In this regard, which document would suffice as a supporting document to register the entity as a “Start-up”?

In such cases, valid copy of the published patent would suffice as a supporting document.

g) How would the Inter-Ministerial Board review the applications received for the purpose of tax/ IPR benefits?

The Board shall review the supporting document(s) provided to ascertain if the entity qualifies as an eligible business for availing tax/ IPR benefits.

h) What is the timeframe for obtaining certification of Inter-Ministerial Board for availing tax/ IPR benefits in case an entity already exists?

An application for a certificate from the inter-ministerial board shall be processed within a period of 10-25 working days.

i) Can entities that do not have any of the other evidences like incubator certificate, funding from registered VCs or patents still apply to Inter -Ministerial Board for tax exemptions?

No. One (1) of the six (6) prescribed supporting material is mandatory to make an application to the Inter-Ministerial Board.

j) An entity is yet to be registered/ incorporated. Can I visit the Start-up India Portal and Mobile App to register/ incorporate my entity as either a Private Limited Company or Registered Partnership Firm or Limited Liability Partnership?

There are two options available in such cases:

#Option 1: An entity can register itself through MCA or Registrar of Firms using the existing processes and subsequently register itself on the Start-up India portal and mobile app as a “Start-up” to avail the benefits.

#Option 2: An entity can register itself through the Start-up India portal and mobile app using a seamless process. This facility would be made available in the second phase of the Start-up India portal and mobile app launch.

k) Which are the bodies and agencies that fall under the category of “Funding Bodies”?

As per the notification no. G.S.R 180(E) dated February 17, 2016, Alternate Investment Funds, Venture Capital Funds, Angel Fund and Seed Funds registered with SEBI will be eligible for providing recommendation/ support/ endorsement letter to entities in which not less than 20 percent equity is taken up by such funds.

A list of SEBI registered VCFs and AIFs has been published on Start-up India portal (http://startupindia.gov.in)

l) Is there any specific format in which a funding body would be required to provide recommendation?

Yes. The prescribed formats for recommendation/ support/ endorsement letters are published on Start-up India portal.

m) What are the aspects that will be reviewed by funding bodies before issuing a recommendation/ support/ endorsement letter?

A funding agency is required to validate if the entity under review is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property if it aims to develop and commercialize:

i) A new product or service or process; OR

ii) A significantly improved existing product or service or process that will create or add value for customers or workflow.

The following activities are not considered as a valid case for issuing a recommendation/ support/ endorsement letter:

i) Products or services or processes which do not have potential for commercialization; OR

ii) Undifferentiated products or services or processes; OR

iii) Products or services or processes with no or limited incremental value for customers or workflow.

n) Can a funding body recommend/ endorse an idea that has not been funded by their funding body?

No. Only those ideas/ Start-ups can be recommended in which not less than 20 percent of the equity is funded by recommending fund.

o) Who will designate a recommender in a funding body?

A funding agency is encouraged to designate its officer(s) to sign/ issue recommendation/ support/ endorsement letter to entities, and share the same with DIPP.

p) What is the liability of a recommender in a funding body?

Where a recommendation is issued by a fund without proper examination or without being satisfied about the innovative nature of the business it shall be blacklisted from giving any future recommendation.

Where a recommendation is given without actually funding equity (not less than 20 percent equity) of the Start-up, DIPP may initiate criminal proceedings against the principal officers of the fund for providing wrong information.

q) When will the tax benefits be available to a Start-up?

The tax benefits proposed under the Finance Bill 2016 will be available from 01-04-2016.

r) Which incubators are authorized to provide a recommendation/ support/ endorsement letter?

As per the notification no. G.S.R 180(E) dated February 17, 2016, an incubator must fall in one of the following categories to be authorized to provide a recommendation/ support/ endorsement letter to an entity:

i) Incubator established in a post-graduate college in India

ii) Incubator funded by Government of India or any State Government as part of any specified scheme to promote innovation

iii) Incubator recognized by Government of India

With regards to (iii), an incubator shall be recognized by DIPP on application.

s) An incubator does not feature in the list(s) of incubators published on Start-up India portal. How can it be included in the list(s)?

In such cases, make an application at Start-up India portal.

Once an incubator application is found eligible, the name of the incubator shall be included in the appropriate list(s) by DIPP.

t) What process needs to be followed for receiving applications from entities not incubated at their incubator?

There is no prescribed format for receipt of application. It is expected that incubator will capture the process and innovative nature of business before making a recommendation.

u) Is there any liability on a recommender/ incubator?

Where a recommendation is issued by an incubator without proper examination or without itself satisfying about the innovative nature of the business it shall be blacklisted from giving any future recommendation or receiving any benefit from Government. Any such action shall, however, be taken only after a due opportunity is given to the incubator.

 

Conclusion

This is a great step by the government of India from the perspective of “Make in India”. One single platform for registering a Start-up was the need of the hour and it has been fulfilled by the government of India. Once the portal gets up and running, we might see a rise in GDP, IIP, and job creation in the long-run. #DigitalIndia #EaseOfDoingBusiness #MakeInIndia

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